Correspondent Bank
A bank acting on behalf of another bank in a foreign location.
Detailed Description
Correspondent Bank
What is the primary function of a correspondent bank?
The primary function of a correspondent bank is to provide services on behalf of another financial institution, facilitating international transactions and currency exchanges.
How do correspondent banks help in international transactions?
They act as intermediaries that allow banks in different countries to conduct business, especially when there is no direct relationship between the banks.
What are 'nostro' and 'vostro' accounts?
'Nostro' accounts are held in the bank's own currency, while 'vostro' accounts are held in the foreign bank's currency, facilitating easier transactions.
What are some risks associated with using correspondent banks?
Risks include compliance issues with AML and KYC regulations, operational failures, transaction delays, and currency fluctuations.
Why are correspondent banks important for trade finance?
They facilitate essential services like letters of credit and trade financing, which are crucial for businesses engaging in cross-border trade.